Smith & Nephew slips on profit taking following figures

Smith and Nephew, the replacement hip maker and perennial bid target, has turned in better than expected third quarter results, but a spot of profit taking has seen its shares slip lower.

The company's third quarter revenues rose 1% while earnings per share climbed 38% to 16.8 cents, compared to forecasts of 14 cents. It said it had seen a pick up in sales in the US in particular as patients decided to resume payment for surgery they had previously been putting off. But the shares, after an early bounce, have dipped 5p to 535p.

The results indicate the good progress being made in its earnings improvement programme and a stabilisation of conditions within its core Orthopaedic markets but also benefits from a lower effective tax rate in the quarter.

Smith & Nephew is currently trading on PE multiples of 13.3 times and 11.8 times for 2010 and 2011 respectively. This represents a modest discount of 3% and 4% to the average of its peers (Stryker & Zimmer).

Investec also maintained a hold rating:

Whilst third quarter results came in ahead of expectations, we think this was down to phasing, with full year guidance remaining unchanged. Divisional performance and the outlook statement were pretty much as expected, with the only surprise being a weaker-than-expected performance in Trauma. We expect to put through around 4% upgrades to reflect changed tax guidance but, in our view, nothing in today's statement warrants a re-rating.